The Chandigarh bench of the Customs Excise and Service Tax (CESTAT) set aside the show cause notice (SCN) demanding excise duty as the revenue failed to Substantiate allegation of clandestine removal of scrap.
The appellants, M/s Ludhiana Steel Rolling Mills, are engaged in manufacture of bars, rounds, and rods etc; during the course of audit, it was noticed that the appellant was also trading in steel scrap, which is similar to the scrap generated in their factory.
A show cause notice was issued to the appellant alleging that they have violated Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and( 2) of Central Excise Rules, 2002; demanding Central Excise duty of Rs.82,20,602/- in terms of proviso 2 Section 11A of Central Excise Act 1944 along with interest and penalty. The showcause notice were confirmed the Order-in-Original.
Shri Naveen Bindal, Counsel for the appellants submitted that the appellants have their head office located at a distance in the same city and he was conducting trading from that premises; though at times, the suppliers mentioned the address of manufacturing premises in the invoices issued by them for the scrap, the trading of the scrap was on account of their head office only and therefore, the same was not entered in the Central Excise Records maintained at the factory.
that the Revenue has not conducted any investigation to prove that the said scrap was manufactured in their factory; no allegation is also made as to the duty payable, if any, on the prime material that have been produced in the factory, in case it was to be believed that the scarp was generated and cleared from their factory without payment of applicable duty; no enquiries were conducted with the transporters to prove that the scrap was cleared from the factory in a clandestine manner.
The appellants, on the other hand, have proof of payment of VAT under Punjab VAT Act; in most cases the scrap purchased from various sources was directly delivered to the premises of the purchasers of scrap from the appellant; in the scrap trade, this is the practice adapted and scrap is not normally unloaded at the premises of the dealer.
Ms. Shivani, Authorised Representative for the department reiterated the findings of the OIO and submitted that the appellants have not intimated the department about their intention to use the manufacturing premises also for the trading purposes; they have clearly violated the provisions of Section 6 of the Central Excise Act 1944 read with Rule 9 (1) and( 2) of Central Excise Rules, 2002 and therefore, they have rendered themselves liable to pay Central Excise duty on the scrap removed by them from the registered premises i.e, the factory .
A two member bench comprising Mr S S Garg , Member(Judicial) and Mr P Anjani Kumar, Member(Technical) observed that “no investigation was made by the Department, even the consumption of electricity was not examined by the Department who adopted the short cut method by raising the demand and levied the penalties. The statement of so called buyers, namely M/s. Singhal Cement Agency, M/s. Praveen Cement Agency; and M/s. Taj Traders are based on memory alone and their statements were not supported by any documentary evidence/proof.”
Further viewed that when there is no extra consumption of electricity, purchase of raw materials and transportation payment, then manufacturing of extra goods is not possible. No purchase of raw material outside the books have been proved.
Since the the Department has failed to substantiate the allegation of clandestine removal of scrap by the appellants, the CESTAT set aside the show-cause notice bereft of any investigation and proof.
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